Technology stocks experienced a sharp reversal, plunging after an initial surge on the day. Multiple leading brokerage strategists have now voiced their opinions, suggesting the adjustment phase may be nearing its end.
The A-share technology sector saw a dramatic "surge and dive" on July 20th, with sectors like semiconductors, memory, and advanced packaging initially rallying strongly before rapidly turning south and extending losses. For instance, several tech stocks, such as Shanghai Huadian Co., Ltd. and Tongguan Copper Foil Group Co., Ltd., were pushed down to their daily limit-down thresholds.
What is driving the persistent decline in tech stocks? When will this correction conclude, and how should portfolios be positioned subsequently? Several chief strategists from major brokerages have recently weighed in. Chen Guo, Deputy Director and Chief Strategist at the East Money Securities Research Institute, stated unequivocally that at this point, there is no need for panicked selling of silicon-based tech to chase dividend assets; instead, one can either participate in a potential rebound or carefully select the genuine leaders in domestic AI technology.
Limited Downside for Tech Stocks
Zhang Jiqiang, Director of the Research Institute and Chief Fixed Income Analyst at Huatai Securities, analyzed that external factors are a key trigger for this round of declines. Combined with hawkish comments from the new Federal Reserve Chair Walsh and the renewed escalation of the Iran conflict pushing up oil prices and inflation expectations, valuations in the technology and growth sectors continue to face pressure. The occurrence of stop-loss and even forced liquidations in leveraged ETFs and other funds in markets like South Korea has further amplified the global tech stock sell-off.
In Zhang's view, the STAR 50 Index rose over 60% at one point in the first half of the year, and the trading volume of the TMT sector exceeded 45% in early July, indicating that the tech and growth sectors had already priced in relatively optimistic long-term expectations. This extreme market structure has, to some extent, weakened the A-share market's ability to withstand external shocks.
Zhang judges that this adjustment is primarily a valuation contraction, with corporate earnings and industrial logic remaining intact; the foundation for a "slow bull" or "long bull" market in A-shares has not been shaken.
Simultaneously, he further analyzed that the risk of margin call liquidations is not significant. Margin balance has declined for 12 consecutive trading days, with a cumulative net outflow of approximately 178 billion yuan. Currently, many clients are proactively reducing positions for risk control, with few instances of forced liquidations. The ratio of margin balance to circulating market capitalization is about 2.86%, still significantly lower than the 4.5% seen during the abnormal market volatility in 2015, indicating an overall orderly deleveraging trend.
Liu Chenming, Chief Strategy Analyst at GF Securities, stated that the current market is essentially "a contest between the speed of EPS (earnings per share) upgrades and the pace of interest rate hikes." He believes that disturbances from interest rates and liquidity are only temporary, and medium-term stock price trends will ultimately be determined by industrial trends.
He argues that the impact of external disruptions should not be exaggerated. Historical precedents involving Chinese and US growth stocks repeatedly demonstrate that during an industrial EPS upcycle, interest rate hikes and liquidity tightening have never truly ended an industrial bull market. This round will be no exception. With A-shares anchored by domestic fundamentals and the foreign ownership ratio relatively stable, external shocks have been largely priced in, leaving limited room for further significant declines.
A Stage Bottom for Tech Stocks
Regarding the future trajectory of tech stocks, Chen Guo judges that from today onward, one should not be overly pessimistic about China's genuine tech leaders and should dynamically assess their risk-reward profile.
Chen believes the medium-term logic for the AI industry remains unbroken. The subsequent logic of domestic AI technology catching up and the expansion into an upcycle has not weakened and may even strengthen. Although the A-share market has recently formed a new pessimistic consensus on silicon-based upstream sectors leading to sustained declines, and even though indices showed initial signs of stabilization today while the tech sector continued to fall, at a juncture where a rebound could be imminent, selling silicon-based upstream to chase dividend assets has limited tactical merit. Trading-oriented investors could consider participating in a rebound, while allocation-oriented investors might still consider carefully selecting genuine domestic AI tech leaders (e.g., leading wafer fabs, chip leaders, semiconductor equipment leaders, Hong Kong-listed internet leaders) as part of their portfolio in the next phase.
Liu Chenming believes that based on a triple judgment of "AI industrial trend continuation + sufficient adjustment magnitude + clear incremental ETF fund signals," this represents the second "decisive moment" of 2026, with rebound conditions maturing and the allocation window opening.
"The first 'decisive moment' was in March, when we advised looking past the US-Iran conflict and high oil price disturbances to focus on high-growth sectors, a judgment later validated by the market," Liu further analyzed. From July 13 to July 18, 2026, net inflows into broad-based ETFs hit the third-highest peak since the start of this bull market—only surpassed by the periods of "September 24th" in 2024 (average daily 37.1 billion yuan) and "reciprocal tariffs" in 2025 (average daily 56.2 billion yuan). Historically, such large-scale net inflows into broad-based ETFs at key technical levels have often corresponded with a stage bottom.
However, Liu cautioned that based on experience, while the adjustment in the A-share tech sector has been relatively sufficient in terms of magnitude compared to history, the duration of the adjustment is still slightly insufficient.
Zhang Jiqiang judges that this round of adjustment is more akin to a market rebalancing process following extreme divergence. After short-term risks have been released to some extent, the market is once again presenting a window for positioning.
Overall, the stock indices show clear signs of being oversold. Taking last April as an example, after a rapid market adjustment, the underlying fundamentals, industrial chain, and capital flow logic were not reversed, suggesting a potential recovery after oversold conditions. Meanwhile, policy support signals are clear. State-owned capital operation companies like China Chengtong have begun increasing stock holdings, conveying a long-term optimistic signal that helps boost market confidence.
On the event front, positive factors are also accumulating. The development of the AI industry, the competitiveness and earnings performance of Chinese companies serve as important foundations supporting market confidence. The earnings delivery of A-share tech leaders and the continuous launch of new domestic large-scale models are expected to become new catalysts for sector gains. Furthermore, structural opportunities remain abundant. Risks in the tech and growth sectors have been substantially released, while independent high-growth sectors like innovative drugs and brokerages have solid earnings, and high-value segments within traditional industries are also worth attention.
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